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Case 1:11-cv-01266-SAS-GWG Document 711 Filed 11/05/14 Page 1 of 5
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------------------------X
SHERYL WULTZ et al.,
:
Plaintiffs,
-v.-
: MEMORANDUM DECISION
:
11 Civ. 1266 (SAS) (GWG)
BANK OF CHINA LIMITED,
:
Defendant.
:
------------------------------------------------------X
GABRIEL W. GORENSTEIN, UNITED STATES MAGISTRATE JUDGE
Following a series of letters from the parties (Docket ## 553, 579, 582, 657, 683, 690),
the Court held a hearing on October 23, 2014 at which the parties discussed the production of
documents withheld by defendant Bank of China Limited (“BOC”) based on regulations
governing “Suspicious Activity Reports,” commonly known as “SARs.” At this hearing, the
Court rejected BOC’s assertion that the regulations barred production of the documents at issue.
See Order, filed Oct. 24, 2014 (Docket # 693). We now provide additional background for our
ruling.
31 U.S.C § 5318(g)(2)(A)(i) provides in pertinent part as follows:
If a financial institution or any director, officer, employee, or agent of any
financial institution, voluntarily or pursuant to this section or any other authority,
reports a suspicious transaction to a government agency . . . neither the financial
institution, director, officer, employee, or agent of such institution (whether or not
any such person is still employed by the institution), nor any other current or
former director, officer, or employee of, or contractor for, the financial institution
or other reporting person, may notify any person involved in the transaction that
the transaction has been reported . . . .
Various banking authorities have issued regulations implementing this statute. BOC has relied
on the regulations promulgated by the Office of the Comptroller of the Currency, see Letter from
Lanier Saperstein, dated July 24, 2014 (Docket # 579) at 1 n.1, which appear in 12 C.F.R.
§ 21.11. These regulations go beyond the statute by barring disclosure to anyone, not just a
“person involved in the transaction.” They provide in relevant part:
(k) Confidentiality of SARs. A SAR, and any information that would reveal the
existence of a SAR, are confidential, and shall not be disclosed except as
authorized in this paragraph (k).
(1) Prohibition on disclosure by national banks. (i) General rule.
No national bank, and no director, officer, employee, or agent of a
Case 1:11-cv-01266-SAS-GWG Document 711 Filed 11/05/14 Page 2 of 5
national bank, shall disclose a SAR or any information that would
reveal the existence of a SAR.
12 C.F.R. § 21.11(k)(1). Additionally, the regulations contain a “rule of construction,” which
states:
Provided that no person involved in any reported suspicious transaction is notified
that the transaction has been reported, this paragraph (k)(1) shall not be construed
as prohibiting . . . [t]he disclosure by a national bank, or any director, officer,
employee or agent of a national bank of . . . [t]he underlying facts, transactions,
and documents upon which a SAR is based . . . .
12 C.F.R. § 21.11(k)(1)(ii)(A)(2).1
As was made clear at the October 23, 2014, hearing and in BOC’s submissions, BOC has
a written policy that directs what steps BOC employees should take when BOC identifies
suspicious or unusual activity. The process involves various portions of BOC’s staff, including
staff that conducts additional investigation into the facts and circumstances. Ultimately, the
information may be presented to a committee within BOC to decide whether a SAR should be
filed.
In response to document requests from plaintiffs, BOC gathered more than 10,000
documents that were generated at various points in this process, though it is not clear at this time
whether this group includes documents that emanated from the committee ultimately charged
with responsibility to decide whether to file a SAR or not. BOC’s argument is a simple one: that
documents produced at each step of this process are protected by the SAR privilege since they
result from the implementation of BOC’s policies and procedures for the filing of SARs.
Plaintiffs argue the documents are not protected by the SAR privilege because they do not reveal
whether or not any SAR was actually filed.
Nothing in the text of the regulations suggests with any clarity that the documents that
are part of BOC’s investigatory process are covered by the prohibition. The Court’s ex parte
examination of samples of documents provided by BOC reflects that the documents do not
1
The Financial Crimes Enforcement Network, known as “FinCEN,” is the agency with
which SARs must be filed. See 31 U.S.C. § 5318; 12 C.F.R. § 21.11(c). FinCEN has issued
regulations implementing the SAR confidentiality provisions that mirror OCC’s regulations. See
31 C.F.R. § 1020.320(e). The Office of Thrift Supervision has issued similarly worded
regulations. See 12 C.F.R. § 563.180(d)(12). The Federal Deposit Insurance Corporation’s
regulation, 12 C.F.R. § 353.3(g), is similar in content, providing that “[a]ny bank subpoenaed or
otherwise requested to disclose a suspicious activity report or the information contained in a
suspicious activity report shall decline to produce the suspicious activity report or to provide any
information that would disclose that a suspicious activity report has been prepared or filed . . . .”
The case law cited herein may rely on any of these regulations.
2
Case 1:11-cv-01266-SAS-GWG Document 711 Filed 11/05/14 Page 3 of 5
themselves indicate whether a SAR was actually filed or not. Instead, the documents contain
references to banking transactions without any specific discussion of SAR requirements.
Certainly, a person with knowledge of SARs might deduce that certain banking activity would
(or would not) result in the filing of a SAR. But the same is true of a knowledgeable person who
examined any original records of banking transactions. Thus, a knowledgeable person who saw
a bank statement with dozens of sequential cash deposits of $9,999 would deduce that the bank
would file a SAR for that customer. But if we were to conclude that a document's potential to
engender such a deduction brought the document within the regulatory prohibition, it would
negate the plain language of 12 C.F.R. § 21.11(k)(1)(ii)(A)(2), which makes clear that there is no
bar to revealing “[t]he underlying facts, transactions, and documents upon which a SAR is
based.”
BOC makes much of the following interpretive text that accompanied the promulgation
of the final regulations — in particular, the underscored text at the end of this paragraph:
Documents that may identify suspicious activity, but that do not reveal whether a
SAR exists (e.g., a document memorializing a customer transaction such as an
account statement indicating a cash deposit or a record of a funds transfer),
should be considered as falling within the underlying facts, transactions, and
documents upon which a SAR is based, and need not be afforded confidentiality.
This distinction is set forth in the final rule’s second rule of construction
discussed in this Section-by-Section Analysis and reflects relevant case law.
However, the strong public policy that underlies the SAR system as a whole —
namely, the creation of an environment that encourages a national bank to report
suspicious activity without fear of reprisal — leans heavily in favor of applying
SAR confidentiality not only to a SAR itself, but also in appropriate
circumstances to material prepared by the national bank as part of its process to
detect and report suspicious activity, regardless of whether a SAR ultimately was
filed or not.
75 Fed. Reg. 75576-01, 75579 (Dec. 3, 2010). We recognize that in some circumstances, a court
must defer to an agency’s interpretation of its own regulations. See, e.g., Auer v. Robbins, 519
U.S. 452 (1997). But even accepting arguendo that such deference is due here (a decision that
requires us to find that the regulatory language is ambiguous and that the interpretation is not
inconsistent with the regulation), we find the underscored language to be unhelpful in resolving
the current dispute. Had the regulation or perhaps even the interpretation outright barred
production of documents prepared by a bank as part of its process to investigate suspicious
activity, the materials at issue here would be properly withheld. But neither the regulation nor
the interpretive language contains any such bar. Additionally, the interpretative language is
couched in tentativeness: it refers to how policy behind the SAR requirement “leans heavily in
favor” of withholding investigatory material, not that such withholding is required. More
significantly, it states that withholding of such material, if it is even to occur, need not occur in
all circumstances but only in “appropriate” circumstances, without stating what those
circumstances are or even what characterizes them. We thus find that the underscored language
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is lacking in semantic content and offers the Court no guidance as to how the investigatory
documents in this case should be treated.2
While there is case law arguably supportive of defendant’s position, and this Court
originally took a different position at the conference with the parties on July 29, 2014, the Court
finds the case law supporting plaintiffs’ position to be more persuasive. Thus, in First American
Title Insurance Co. v. Westbury Bank, 2014 WL 4267450 (E.D. Wis. Aug. 29, 2014), the court
found that documents generated as part of a bank’s standard business practice, such as
investigating potential fraud or other irregularities, remained discoverable even when the “fraud
investigation parallels the process of preparing a SAR.” Id. at *3. It cogently noted that “[t]he
relevant regulation bars only disclosure of information that ‘would’ reveal the existence of an
SAR; it does not prohibit disclosure of information that ‘could’ or ‘might’ reveal the existence.”
Id. at *2. Here, as might be expected, there was no evidence of any process for investigating
suspicious activity other than the process that might ultimately lead to a presentation to the SAR
committee to decide whether to file a SAR. But any bank, including BOC, has its own reasons
for investigating suspicious activity other than the statutory obligation to file a SAR — including
to protect itself from fraud and to make sure it does not violate or abet the violation of other
banking regulations and statutes, such as money laundering statutes. Thus, investigatory
documents do not by themselves reveal the existence of a SAR. This was made plain in
Freedman & Gersten, LLP v. Bank of America, N.A., 2010 WL 5139874 (D.N.J. Dec. 8, 2010),
in which the court noted that although the bank in that case “may have undertaken an internal
investigation in anticipation of filing a SAR, . . . it is also a standard business practice for banks
to investigate suspicious activity . . . . ” Id. at *3. Freedman & Gersten, LLP ordered production
of “any memoranda or documents drafted in response to the suspicious activity at issue in this
case, ” id., notwithstanding the fact that the bank’s “entire investigation was undertaken in
anticipation of the potential filing of an SAR,” id. at *3 n.3.
Similarly, in In Re Whitley, 2011 WL 6202895 (Bankr. M.D.N.C. Dec. 13, 2011),
plaintiffs sought discovery of documents relating to the identification of an individual’s bank
account as “an account which was experiencing unusual, suspicious and potentially illegal
activity.” Id. at *1-2. The court compelled the disclosure of any documents or notes obtained by
the bank from any source, relating to “any investigation or inquiry by the bank or its agents into
any account of” the individual at issue, including where the individual was identified as having
“suspicious and/or unusual, irregular or improper account activity.” See id. at *4. See also
United States v. Holihan, 248 F. Supp. 2d 179, 187 (W.D.N.Y. 2003) (“Any supporting
documentation which would not reveal either the fact that an SAR was filed or its contents
cannot be shielded from otherwise appropriate discovery based solely on its connection to an
SAR.”); Weil v. Long Island Sav. Bank, 195 F. Supp. 2d 383, 389-90 (E.D.N.Y. 2001)
2
The agency goes on to state that “[t]his interpretation also reflects relevant case law.”
75 Fed. Reg. at 75579. But we do not believe that we can generate a rule from the cited cases
that would allow us to add content to the language used in the main body of the text. Moreover,
the agency states that the cited cases merely support the interpretive language, not that they
engraft onto it additional substance.
4
Case 1:11-cv-01266-SAS-GWG Document 711 Filed 11/05/14 Page 5 of 5
(compelling the production of any "supporting documentation" that did not reveal the existence
of a SAR or reveal its contents).
As was explained at the October 23, 2014, hearing, there may be documents generated at
the decisionmaking stage that contain a discussion of SAR requirements and reflect BOC' s
decisionmaking process specifically as to whether to file a SAR. We have invited BOC to point
out any such documents and indicated that they may be withheld if they reveal the existence of a
SAR. This is consistent with the decision in Wiand v. Wells Fargo Bank, N.A., 981 F. Supp. 2d
1214 (M.D. Fla. 2013), in which the court compelled the production of "a report generated by
the bank in the ordinary course of business in monitoring unusual activity" and other internal
emails but not reports of "an evaluative nature intended to comply with federal reporting
requirements." Id. at 1217-19.
The Court acknowledges that cases exist to support a more expansive construction of the
regulations. See,~, Norton v. U.S. Bank Nat. Ass'n,, 324 P.3d 693 (Wash. App. Div. Feb. 18,
2014); Union Bank of Cal., N.A. v. Superior Court, 29 Cal. Rptr. 3d 894 (2005). However, the
Court is unable to reconcile such cases with the cases cited above and does not find them as
persuasive. More importantly, we are faced with the regulatory language itself, which bars
production of only those documents that "would reveal the existence of a SAR." We do not see
how the investigatory documents at issue differ in character from the "underlying ... documents
upon which a SAR is based" - records that the regulations themselves explicitly exclude from
the SAR prohibition. In no instance have we been shown documents that would "reveal the
existence of a SAR."
For the reasons stated above and on the record at the hearing held on October 23, 2014,
BOC's invocation of the SAR prohibition is rejected as to investigatory documents. IfBOC can
point to evaluative documents, presumably generated by or for the committee involved in the
final SAR decisionmaking process, that reference the SAR requirements specifically as to the
particular customer or transactions involved, such documents would likely be protected. If there
are such documents, BOC should provide them (or samples if they are numerous) to the Court
forthwith for in camera review.
SO ORDERED.
Dated: November 5, 2014
New York, New York
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